The Man Who Figured Out Madoff's Scheme

Tells 60 Minutes Many Suspected Madoff Fraud; Says SEC Is Incapable Of Finding Fraud

(CBS)  "An affinity scam is when you prey on groups that are similar in nature to yourself. So I'm Greek. If I was gonna run an affinity scam, I would run it on the Greek American community here," Markopolos explained. "Bernie was Jewish, so he ran it on the Jewish community in the United States. But that wouldn't get him enough customers, 'cause he always needed new money to keep the scheme going."

Over time, Madoff extended his reach from New York to Palm Beach, Fla., where he enlisted hundreds of wealthy clients, many of them recruited from his own country clubs. And he also made connections that gave him entree to Europe, and the hedge funds capital of America, Greenwich, Conn.

It was in Greenwich that Bernie Madoff made some of his biggest deals with large investment firms that were willing to feed him billions of dollars of their clients' money to manage. And in return, Bernie Madoff agreed to pay the so-called feeder funds a fortune in annual fees. The largest of the feeder funds was the Fairfield Greenwich Group.

"How much money did Fairfield make off Bernie Madoff every year?" Kroft asked Markopolos.

"Hundreds of millions of dollars," he replied.

"If you're a feeder fund or a fund of funds thing, what's your responsibility? What are you supposed to do for those hundreds of millions of dollars?" Kroft asked.

"You're supposed to identify the world's best hedge funds managers and invest only in them. And you're supposed to make sure they're not running Ponzi schemes," Markopolos said.

"The real steroids here were the feeder funds. That's what made it an international Ponzi scheme," attorney David Boies told Kroft.

Boies, one of the most prominent lawyers in the country, is representing Fairfield Greenwich investors, who lost nearly $7 billon when Madoff went under. They are suing the firm for gross negligence, claiming it failed to investigate Madoff thoroughly or monitor his activities as it promised to do in its marketing materials.

"Analysis of portfolio composition, portfolio stress testing, risk management, asset verification. Do you think that really happened?" Kroft asked.

"No. We know it didn't happen. Because we know all they did was turn the money over to Bernie Madoff. And they did that for 20 years," Boies said. "They essentially did nothing except lose their investors' money. And enjoy very luxurious lifestyles from the money they took out."

Walter Noel, one of the founding partners of Fairfield Greenwich, declined to talk to 60 Minutes and was reportedly lying low with his wife at their compound on the private island of Mustique. But in a statement to 60 Minutes, his firm said it too was a victim of Bernie Madoff, that it had placed too much trust in his "then-impeccable…reputation" and in the fact that there had been "multiple reviews of Madoff by the SEC."

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Click here to read the full Fairfield Greenwich statement.

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In the end, Harry Markopolos had been right about Bernie Madoff. He would be going to prison, but not because of anything that Markopolos or the SEC did. In a bad economy, Madoff's lies simply collapsed under their own weight.

"No one was investigating Mr. Madoff at the end," Markopolos said.

"So he turned himself in before anybody, in a position of authority, began a serious investigation?" Kroft asked.

"That's typically how the SEC does it," Markopolos said. "They come in after the crime has been committed, they toe-tag the victims, count the bodies, and try to figure out who the crooks were after the fact, which does none of us any good."

[thurston2001]

I have no sympathy for greedy people who thought they were so much smarter than everyone else and belonged to an exclusive club. I do feel sorry for the people who invested with feeder funds, funds who did not do their job of due diligence.

[lmp2002]

I feel very badly for the victims profiled but some of the interview data makes no sense. The Forrester's profiled stated they have only 60 days of cash left after selling their home. This would mean that at age 80 they were fully mortgaged on their home (no equity) in what is likely a $750K or $1.0M+ property? I would expect that with an "8 digit" porftoflio - that they did have access to for 30 years - that they would have paid off their mortgage(s) by now. This would include the Florida home they were on their way to sell. Again, I am sure this is causing a lot of finanical hardship but the statements do not seem to represent the actual situation - and were justed added to sensationalize the story. Sadly, there are many people who did lose everything - including their daily funds to live (I know some) I am just not sure it it this couple represented.

[lovegetpeace]

With Greed, Capitalism is self-destructive. If left alone, Capitalism will commit suicide.

[lovegetpeace]

Greed in Capitalism is like Cancer in Humans. You never know you have it until it is too late.

[John_Merritt]

Well as they they say 'money talks.............and BS walks'. I am amzed at how many of these 'whistleblower' cases are just swept under the rug. There are so many questions, with an equal amount of answers; but yet the American people has been spared from knowing about them. Why you ask? If I did not know better.............somebody does not like us.

[wyo1943]

Old Hebrew saying: A fool and his money MUST part......

[juwboy]

jincstress:

A tiny fraction of 1% of the world`s Jews lost money in Madoff`s scheme but you describe it as a "financial holocaust".

Clearly, English is not your first language.

Why don`t you go back where you came from?

[jincstress]

All those poor Jews. This is nothing less than a financial holocaust.

[stabill48]

Folks, all of this happened because of numerous: "De-Regulations" that took place under Ronald Reagan.--
Where in that total article can anyone infer there was a lack of regualtion? Well, duh..how many time did Markopolos go to the "regulators?"

Please, those of you with glass bellybuttons...go optic.

[tugar04]

I just read that Bernie Madoff's wife has $823 Million in various banks, in addition to other holdings such as a yacht, etc....

JUST HOW BERNIE MADOFF GOT AWAY WITH IT ALL, FOR SO LONG...

With all these holdings and monies, and the wife (Ruth Madoff) not having any viable evidence as to how she acquired such wealth, I don't see why Madoff's victims cannot get a substantial portion of their loses back.

Folks, all of this happened because of numerous: "De-Regulations" that took place under Ronald Reagan. And Bill Clinton was kept so busy with the Monica Lowinski business that he had no time to keep an eye on most of the gov'ts business during his last years in office. Then George Bush came along and further relaxed many of the laws enforced by the fed govt. He even contracted out a great deal of the work that was done by govt employees to private contractors, who botched up things more times than not, for the people they were being paid to service.

BUT MADOFF KNEW HE HAD NOTHING TO FEAR FROM THE SEC under the Bush Administration. And if anyone even thought to go the the SEC with their suspicions, they got nowhere. Because Madoff had officials at the SEC eating out of his hands. And that should be investigated as well, because our govt is supposed to work for us, (rich or poor), but work.

[zykracosmos]

A few observations-
1) If anyone ever needed proof that capitalism needs to be regulated in a transparent way, this is a flaming example they should focus upon.
2) Self-regulation does not work and never has.
3) Government agencies that get their budget from fees paid by clients they are regulating become corrupt and enablers of the problems they are meant to solve.
4) Regulatory agencies must be run by personnel who have the training and background to understand what it is that they are regulating, and this does not mean a collection of lawyers interpreting documents to verify compliance.
5) Markopolos should be immediately appointed to oversee a complete overhaul of the SEC and restructuring of its oversight functions.

[perk235]

"I've taken all the calculus courses, from integral calculus through differential calculus, as well as linear algebra. And statistics, both normal and non-normal," Markopolos said.

Asked how long it took him to figure out something was wrong, Markopolos said, "It took me five minutes to know that it was a fraud. It took me another almost four hours of mathematical modeling to prove that it was a fraud. "
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Too bad this guy who blew the whistle in 2000 was trying to use EVIDENCE and actual numbers during a 10 year era when everything was belief-based.

[leprechaun1230]

I would like to know why Madoff is not in JAIL right now!!!
He has the stones to suggest that he be allowed to keep his penthouse and millions of dollars put in his wife's name that had nothing to do with the Ponzi scheme? How dare he!!!
Everything he and his extended family owns should be taken, liquidated, and put toward whatever can be salvaged from his corrupt and greedy scheme, so something can be returned to those that were bilked. As for Madoff, an orange jumpsuit, and a suite in Rikers Island is all he deserves.

[2catnight]

I was not involved with Madoff but I am still livid that he got away with this for as long as he did. It is so unfair when crooks like him, molesters, murderers, etc. are not found out until they have one foot in the grave. He has lived his entire life free and easy and only has to pay for what he did for a short time (if he pays at all) because he's nearing 71.

[bobnjersey]

["If you had executives at the biggest investment houses on Wall Street that knew something was wrong, why do you think they didn't go to the SEC?" Kroft asked.

"Because people in glass houses don't throw stones. And self regulation on Wall Street doesn't work," Markopolos said. ]

so if this is true ... then you'll never be able to get anyone who really understands the business to 'police' the business ... since in order to know it you have to come from it.

[connieandgeo]

Testimony of Harry Markopolos before the US House of Representitives on 2/4/09 should have been in every newspaper in complete form if one wants the answers for our economic problems. In my opinion, he should also be given the job of correcting the problem's in the Securities Exchange Commission. Don't dismiss what I'm telling you until you have read the Testimony ,if it's still there ,which I doubt. I hope ,it's still there in it's complete form. His corrections were quite compelling for our problems.

[yrralretsiem]

Until white collar criminals are punished like the criminals they are, they will always get away with this sort of crime. Unfortunately lawyers, judges, and politicians get to play by a different set of rules than the rest of us, and that in itself is the heart of the problem.

[rired48]

Harry Markopolos is an American hero. These are the individuals you talk about at the dinner table with your children... not a basketball or baseball star.

[baseball1210]

I'm sorry, but am I supposed to feel bad for all these "small people" (ppl who saved their whole lives to accumulate a substantial net worth) who lost money with Madoff?? I think the real fools here are those that put all their eggs in one basket and gave money to this man. Remember that old phrase if it sounds too good to be true it probably is? I'm sorry, I have no sympathy for that 80 year old couple in the story who had to sell all their homes. After 80 years of life experience, you would think they would know better not to put all eggs in one basket, and to know that something strange is up when (a) they were getting returns of 5% when the market was down -40%, and (b) there were very few down quarters, and (c) the lack of transparency.

[u-r-right]

I know it's a drop in the bucket but they should take away all that Madoff has and disperse the cash value evenly among all his victims. Then charge Madoff for his room, board and three square meals per diem as he rots away in jail.